1. The appellant is a non-resident company. During the previous year, ended 31-3-1979, rele-for the assessment year 1979-80, the appellant sold 9,520 shares of Bharat Steel Tubes Ltd. on 13-3-1979 and 16-3-1979, for a sum of Rs. 97,153. It declared the capital gains, arising on the sale of these shares, at Rs. 16,016. This was on the basis that these shares were sold for US $11,969 at the exchange rate of Rs. 12.32==$1 while these shares were purchased for $9,996 resulting in a capital gain of $1,973.25. In support of this sale, the assessee filed a certificate from J.S. Sawhney & Co. ; Share Broker, Delhi Stock Exchange, showing the rates at which these shares were sold on the two dates.
2. The ITO rejected the computation of capital gains made by the appellant in dollar to dollar basis as incorrect, as the shares were registered in India and were also sold in India at the Stock Exchange at the rate mentioned in the certificate. He, therefore, held that the capital gains had accrued in India and could only be ascertained on rupee basis. After deducting the cost of these shares, amounting to Rs. 47,600, from the sale proceeds of Rs. 97,153, the ITO computed the capital gains at Rs. 49,553 which he brought to charge.
3. The appellant preferred an appeal objecting to this assessment made by the ITO. Since none appeared on behalf of the appellant, the Commissioner (Appeals), disposed of the appeal, on merits, ex parte, after examining the contentions raised by the appellant in its grounds of appeal. The Commissioner (Appeals) held that the basic fact was that the transactions, viz., the purchase of shares of Bharat Steel Tubes Ltd. and their sale, had taken place in Indian currency and not in foreign currency as urged by the assessee and that Rule 115 of the Income-tax Rules, 1962 'the Rules' was not at all attracted, for the simple reason that the capital gains accruing or arising to the appellant had not accrued or arisen in foreign currency on the facts stated by the appellant itself and that the shares were sold at Delhi Stock Exchange through J.S. Sawhney & Co. He pointed out that, admittedly, the sale price was quoted in Indian currency and the sale proceeds were also realised in Indian currency. He further held that, ignoring for the time being the quantum of capital gain, whether Rs. 16,020 as worked out by the appellant or Rs. 49,553 as computed by the ITO, it was very clear that the sale proceeds having, in the first instance, been realised by the appellant through its brokers J.S.Sawhney & Co. in Indian currency, Rule 115 did not and could not apply on the facts and the circumstances of the present case. He further pointed out that the appellant, which is a non-resident company, had acquired the shares of Bharat Steel Tubes Ltd. in India, that the consideration paid was in the sum of Rs. 47,600 and that, for that purposes, the appellant had to remit a certain sum from outside India, in terms of US dollars, at the then prevailing rate of exchange. The Commissioner held that the said fact of remittance was wholly irrelevant for determining the cost of acquisition of the said shares and about which there was no dispute that the said cost was Rs. 47,600.
He, therefore, held that the transactions being in Indian currency and the cost of acquisition as well as the sale proceeds being already expressed in terms of Indian currency, it would be neither reasonable nor permissible to convert the said factors into US dollars so as to arrive at the resulting gain as appeared to be the method followed by the appellant. He rejected the said method as erroneous and untenable.
He also rejected the assessee's plea that the ITO had taxed a non-existent income and pointed out that the transactions of the purchase and sale of the shares being real, the capital gain as computed by the ITO at Rs. 49,553 was equally real. He further held that the capital gain having accrued in India and being straightaway determined on rupee basis, the appellant had obviously erred in re-working out the quantum of capital gain on the basis of US dollars as received by it. He, therefore, confirmed the assessment made by the ITO and dismissed the appeal. Aggrieved by this order of the Commissioner (Appeals), the assessee has preferred the present appeal.
4. We have heard Shri M.L. Gupta, the learned counsel for the appellant, and Shri S.D. Kapila, the learned departmental representative, and carefully considered their submission in the light of the materials placed before us.' 5. Shri Gupta did not press Ground No. 1 against the decision of the Commissioner (Appeals) who passed an ex parte order. Accordingly, the said ground is rejected as not pressed.
6. The remaining point in the appeal is about the determination of capital gains at Rs. 49,553 as against Rs. 16,020 worked out by the assessee. The first submission of the learned counsel for the appellant is that Section 45 of the Income-tax Act, 1961 ("the Act"), would not apply to the appellant's case as deemed or illusory capital gains were being taxed. We are unable to accept this submission of the learned counsel. As rightly held by the Commissioner (Appeals) both the transactions of purchase and sale of these shares were real transactions which have given rise to real capital gains. There is nothing fictional or illusory about the capital gains in the present case. On the contrary, the appellant, itself, had declared capital gains of Rs. 16,020 in its return of income. Therefore, this contention has to be rejected.
7. It was next argued t}y Shri Gupta that the cost of acquisition of the shares should be adjusted so as to allow the benefit of devaluation in the cost. This contention also is untenable since this argument assumes the computation of the capital gains on US dollar basis. On the other hand, the facts found by the Commissioner (Appeals) and the ITO clearly establish that the appellant acquired 4,760 shares on 4-5-1964 at Rs. 10 per share for Rs. 47,600. Therefore, there is no question of any devaluation benefit being adjusted in this cost.
8. The learned counsel next contended that the two decisions of the Tribunal Bench "A" in the case of Kelvinator International Corporation v. ITO [IT Appeal No. 2348 of 1972-73, dated 16-4-1974] and in the case of Arwood Corporation v. ITO [IT Appeal No. 5058 Delhi, of 1975-76, dated 12-8-1977] would not apply to the facts of the present case. We have perused these orders of the Tribunal, copies of which have been placed before us. In our view, these two decisions of the Tribunal are directly applicable to the facts of the present case. In Kelvinator International Corporation (supra), it was held as follows by our learned brothers of 'A' Bench in para 10 of their order : We have given the matter our careful consideration and we have come to the conclusion that in principle the contention urged by the departmental representative has to be accepted. We think that Sh.
Gupta is right when he says that the learned representative for the assessee is not correct in placing emphasis on the fact that dollar-wise the assessee has received nothing more than what it had been originally entitled to under the agreement. We are of opinion that Shri Gupta is quite right in his submission that, for purposes of taxation in India, we are concerned with the effect of transactions in terms of the Indian rupee. We have to see what exactly is the effect of the clauses of the agreement in terms of the Indian rupee. Looked at in this manner, there can be no doubt that in fact the assessee has received an additional sum over and above what had accrued to it earlier. As pointed out on behalf of the Department, the effect of the agreement was that the engineering fee payable to the assessee was first calculated in terms of rupees.
We have already given the relevant figures in respect of the three quarters with which we are concerned in paragraph 3. If the Indian company had remitted the amounts due to the assessee then and there in terms of Indian rupees, it would have sent out the figures of royalty which have been extracted in paragraph 3 above. For purposes of assessment, at that stage, certainly it was of no consequence whether the two companies inter se calculated the amount in terms of dollars or rupees. So far as the Indian revenue was concerned the assessee became entitled to a certain sum of money in terms of rupees. That amount was duly disclosed by the assessee in its earlier assessments and also brought to tax. But then the position altered with the introduction of the devaluation on the 6th of June, 1966. It is as a result of this devaluation that the assessee-company found that if the commission, worked out in terms of rupees, was remitted to it, it would not be getting the dollar equivalent provided for in the agreement and that if that dollar equivalent was to be provided, then additional engineering fee would have to be remitted to it. This right of the assessee-company to receive additional engineering fees in terms of rupees accrued or arose on the 6th day of June, 1966. This right arose by virtue of the clause of the agreement which specifically stipulated that, in computing the engineering fee, the currency conversion rates shall be applied as at a particular date. It was by exercising its rights under this clause that the assessee insisted upon the payment of additional amounts to it in terms of rupees. The Indian-company after making some attempts to cast the responsibility on the Reserve Bank of India ultimately obtained permission to comply with the terms of the agreement and to repatriate further rupee currency by conversion into dollars. We are, therefore, of opinion that as a result of the agreement the assessee became entitled to additional amounts by way of engineering fees. These additional amounts will partake of the same character as the original amounts due to it. We are, therefore, of opinion that the sum of Rs. 42,185 remitted by the Indian company to the assessee-company was income that accrued to it and was also income that became liable to tax.
9. In Arwood Corporation (supra), the Tribunal held as follows in paragraphs 6 to 8 of its order : 6. After hearing the learned counsel, we are of the view that the method of computation adopted by the authorities below was proper and the appeal has to be dismissed.
7. In the case under appeal, the shares were admittedly equity shares of Rs. 10 each of the Bharat Steel Tubes Ltd. Whatever might be the mode of payment between the assessee and the selling company, the shares had to be valued in terms of rupees only and not in terms of dollars. The purchase of the shares had to be calculated in terms of rupees, irrespective of the method of payment or currency agreed upon between the two non-resident companies. The shares were sold to Indian residents and the value of the shares had to be computed only in terms of rupees. The mode of computation of income under the head 'Capital gains' has been laid down under Section 48 of the Act.
Since the equity shares of Rs. 10 each were purchased at par by the assessee-company, their value was properly worked out in terms of rupees by the ITO for purposes of Section 48 of the Act even though actual payment was made in dollars. The sale price of these shares was also properly computed in terms of rupees for similar reasons.
8. The contention of the appellant that the capital gains should have been calculated in terms of the difference in dollars and then worked out in accordance with Rule 115 of the IT Rules, cannot be accepted. The shares related to an Indian company and were issued in Indian currency. The purchase and sale price of these shares, therefore, could be computed only in rupees and not in any other currency. We, therefore, hold that the method adopted by the learned lower authorities in computing the capital gains was proper.
We entirely agree with the abovementioned orders of our learned brothers in both the cases. We may point out that the facts in the case of Arwood Corporation (supra) are similar to the facts in the present case. We are unable to agree with the learned counsel that these decisions of the Tribunal are distinguishable from the facts of the present case. As rightly contended for the revenue, the capital gains in question have actually accrued to the appellant within India and hence are chargeable under Section 5(2)(b) and not under Section 9 of the Act. The shares were also purchased by the appellant that Bharat Steel Tubes Ltd. has maintained any foreign register as required by Sections 157 and 158 of the Companies Act, 1956 (sic). The learned departmental representative is right in his submission that the acquisition and the payment of consideration for acquisition of shares being in India in Indian rupees to the Indian company and since sale was also in India and in Indian currency, the capital gains have to be computed only in terms of Indian rupees. The subsequent event of remittance of the sale proceeds in US dollars would not affect the character of the receipt, in the first instance, as received by the appellant in Indian rupees. Shri Kapila is right in his contention that under the Act we are concerned with income computed in terms of Indian currency only, since all foreign currencies have to be treated as commodities as held by the Karnataka High Court in Kirloskar Asea Ltd. v. CIT  117 ITR 82. He is also right in his argument that the cost of acquisition of the shares in question could only be their original cost in Indian rupees as the shares were issued only in Indian rupees. We are, therefore, unable to agree with the learned counsel that the cost of acquisition of these shares was in dollars and that under Section 48(2) of the Act the increase in the dollar value could also be an indirect improvement as a result of devaluation. To our mind, this argument seems to be far-fetched and not justified by the language of Section 48(2).
10. We also agree with the learned departmental representative that Section 43A of the Act is a special provision which had come into force with effect from 1-4-1967 and that the same did not apply to the facts of the present case.
11. The decision of the Tribunal, Delhi Bench, 'C', in Abbey Etna Machine Co. v. ITO [IT Appeal No. 1057 (Delhi) of 1979 dated 6-6-1980] was relied on by the learned counsel for the appellant in support of his contentions. A copy of this order appears at pages 9 to 12 of the appellant's paper book and we have perused the same. Though this decision of the Tribunal supports the assessee's contention, with great respect, we find ourselves unable to agree with the line of reasoning adopted by our learned brothers in the said case. We have also perused the decision of the Supreme Court in Mm Dhun Dadabhoy Kapadia v. CIT  63 ITR 651, which has been followed by the Tribunal in the said case. In our view, this decision of the Supreme Court is inapplicable to the facts of the present case. We, therefore, respectfully follow the two orders of the Tribunal in the case of Kelvinator International Corporation (supra) and Arwood Corporation (supra) which we have quoted above and hold that the capital gains have been correctly computed by the ITO at Rs. 49,553. The method of computation of capital gains followed by the appellant, in the present case, by invoking Rule 115 is totally uncalled for and unjustified by the facts of the present case.
There is absolutely no scope for such a tortuous and circuitous method of computation of capital gains. It is just like touching one's nose by putting one's hand around one's head. We, therefore, entirely agree with the reasoning and conclusion of the Commissioner (Appeals) and dismiss the appeal.